Michael Lewis on analytics, sports, and Wall Street

At the SugarCRM conference earlier this week, author Michael Lewis gave a keynote presentation tying together some themes on how analytics have helped to “intellectualize” pro sports and Wall Street.

Lewis is the best-selling author of “Liar’s Poker,” which chronicled his experience as a bond trader at Solomon Brothers in the 1980s; “The New New Thing,” which captures the spirit of the dot-com boom in the form of Jim Clark’s post-Netscape ventures; and “Moneyball,” which describes how the Oakland A’s used quantitative analytics to hire undervalued players and achieve a spectacular winning record at a fraction of the payroll of other teams.

While this didn’t make for the most uplifting presentation I’ve seen (especially when Lewis described the current financial crisis), it is interesting to see the different ways analytics can be used and abused. In the case of the Oakland A’s, analyzing details of individual player stats enabled them to use gaps in the market valuation of players to create an advantage over teams with much larger payrolls.

As Lewis makese clear in articles in Portfolio magazine, much of Wall Street’s focus on analytics and derivatives has actually obscured the risk, leading to financial disaster the likes of which have not been seen in more than 50 years. It’s a good reminder that when an investment (or a product or a business strategy) is so complex that no one really understands it, there may be good reason to steer clear.